The crisis at NCLAT: why speedy resolution of corporate disputes is beyond reach – ET Prime

First, consider these facts. The National Company Law Tribunals (NCLTs) have handled about 64,000 cases and will take several years to clear their current backlog of over 20, 000. A fair number of these — estimates vary from 20% to 30% — will find their way to the National Company Law Appellate Tribunal (NCLAT) through appeals, which may take a few years more to dispose them off, given its infrastructural constraints. It’s a crisis of sorts.

While the woes of NCLTs have been documented, ET Prime now puts the spotlight on the appellate tribunal NCLAT, a vital cog in the corporate-law adjudication framework.

After SJ Mukhopadhyay’s retirement, Bansi Lal Bhat, a judicial member of the NCLAT and a former high court judge, has now been appointed as officiating chief of the NCLAT. It currently has four judicial and six technical members sitting in four different courts at the appellate tribunal hearing, with approximately 100-150 cases listed on a typical day. This load is much more than the system can handle.

Stakeholders say that even the latest step of notifying a new bench at Chennai is unlikely to bring immediate relief.

A typical time gap between two hearings is anywhere between 45 days to two months. This means several litigants and their lawyers have to spend considerable time and money just in the hope of getting a meaningful hearing.

Last year, the government had taken steps to increase the capacity of NCLATs by adding more benches and members. But unfortunately, the clog in its system has only become worse.

A common casualty is resolution plans which are approved by the NCLT and resolution professionals (RPs) themselves, which are challenged at NCLAT. “Though technically the resolution plan can take effect, parties involved are not sure what will happen. Also, once the resolution plan is approved by NCLT, the job of the RP is over. However, in most cases, the appellants make the RP a party. The RP has to hire a lawyer and follow the hearings,” says Mamta Binani, an RP and a former president of the Institute of Company Secretaries of India, adding, “It is like a bone. You can’t throw it out, you can’t leave it there.”

A day at the NCLAT
Tucked away in a quiet corner of New Delhi’s Central Government Offices (CGO) Complex off Lodhi Road, the day begins at 10.30 am at the NCLAT.

Appeals from across the country funnel in daily against the orders passed by the over two dozen NCLT benches in 15 different states across the country. These include cases under the company law and orders passed under the Insolvency and Bankruptcy Code (IBC). Separately, the appellate body also hears appeals against orders by the Competition Commission of India.

Litigants and lawyers come from all over India to the CGO complex premises of NCLAT. On a typical day, the cause list — which has cases listed to be heard that day — is 30-35 cases long per court.

The courts sit from 10.30 am to 1.30 pm, leaving an average time of around five-six minutes for each case. Given this paucity in time, several litigants and lawyers ET Prime spoke with said on a given day not more than five or six cases get a meaningful hearing. Often, most others are adjourned.

Satish Parasaran, a Chennai-based lawyer and a resolution professional (RP), says, “The last time I came here, the bench could not hear my matter due to some other reasons. Sometimes when the matter comes up, it gets rescheduled to another date if the other party requests some more time. So out of 20-24 hearings, only seven-eight times hearings were effective. It’s tedious for lawyers like us who fly all the way from Chennai to Delhi for one case.”

Many litigants find this whole exercise ‘painful and frustrating’. “Things may become better in the future. But as of now, they are pretty bad,” says a stakeholder bluntly.

“Litigations are not inexpensive,” asserts Binani.

“Depending upon the criticality of the issue, litigants may choose whether to hire a senior advocate or not. If one chooses a junior, then one might have to spend a day or two more to brief him. All this in the hope that we get to put up a good fight. But often, due to paucity of time one never gets the chance to make the kind of arguments one wants to put up,” Binani, who has handled some complex cases, adds.

Litigants also say the courts are not very strict about giving time. This means some are able to extend timelines on flimsy grounds, putting opponents with genuine cases in a spot.

S Ravi, managing partner, Ravi Rajan & Co, a chartered accountancy firm that also deals in IBC matters, says the systemic malaise has become deeper. “There are close to 20,000 cases pending at the NCLTs. Assuming about 30 percent of these will go to NCLAT for some issue or other, the load is too much to handle for a single bench to handle.”

Ravi says there could be multiple causes of action under the IBC. “People can move the appellate body on admission, a point of law or even against an IRP. Suppose I go for an admission, it takes four months to admit. And then, someone takes it to the NCLAT which sits on it for another four months. Look at the economic cost.”

Even after the hearing is over it takes a long time for the order to be passed, Ravi points out. “Bank has not done restructuring all along. If you clog one bogie, the next cannot move,” he says, explaining how the clog at the appellate body can hurt progress at the NCLT level too.

Inordinate delays
The resolution plans of Essar Steel and Alok Industries are examples of plans that lingered in the appellate body for months. The flood of IBC cases also means critical decisions on company law also get delayed.

In December 2019, the NCLAT passed its order on appeals filed by Cyrus Mistry and his family firms against Tata Sons. The order, which was almost six months in the making after hearings were completed in July, was stayed by the Supreme Court in January.

Two days before he turned 70 and superannuated, SJ Mukhopadhyay, the then presiding officer of NCLAT, passed the final judgment on the IL&FS resolution plan.

With over 170 lawyers representing some 300-plus litigants in the matter, this was one of the most significant orders passed by Mukhopadhyay in his term. This also took nearly six months in the making.

Harish Kumar, partner at L&L Partners, emphasises it is high time that the government removed the hurdles in the appointment of permanent judges at these company law courts given the essence of time in such proceedings. He says that “recently there was a change in judge and a new judge was appointed in one of the cases that have been pending before the Allahabad bench for more than a year. The judge has been hearing the matter again which has been delaying the process”.

Sanjeev Ahuja, another RP, seconds Kumar. He says that appointment of judges on a temporary basis adds on to the challenges the courts already have. Matters at the NCLAT require substantive deliberation and for these kinds of critical roles, he points out, adding that “I would rather want to see that the person who is going to be appointed on a regular basis be present in-person at least a month or two prior in the court”.

But in terms of capacity, both lawyers and RPs believe that the struggle is far from over.

Back in December 2018, NCLT and NCLAT bar association had moved the Delhi high court seeking relief with respect to the daily struggle faced by the litigants as well as advocates in these courts. The two associations had raised concerns over the tribunals’ poor infrastructure.

The high court had then asked the MCA to file a status report on the matter and subsequently a committee was established to come up with a solution. “It may not be possible to carry out any changes to take care of issues like size of courtrooms, inappropriate sitting area, inadequate space for Registry etc.,”the MCA had then said.

But the growing number of cases piling up in the appellate tribunal in the last two years has shrivelled the size of the courtroom, prompting the ministry to finally shift the office.

From mid-January this year, the NCLAT has started functioning from its new location in the MTNL building in CGO complex.

Procedural hurdles
Kumar senses that the appellate tribunal still faces bandwidth issues that need to be addressed further.

“What we have been witnessing especially in NCLAT is that it is actually taking a couple of weeks to get the written order. In fact, we have cases where for a month the order has not been posted on the website. Now think of a practical situation wherein we have got the order orally but it has not been posted on the website.”

He says that such a derailment in getting written orders itself hurts the very interest of corporates who may not like to take any action until and unless they get the final order in hand.

The recent MCA directions have also postponed company appeals, competition appeals, contempt petitions and review applications till April 17 in the appellate tribunal amid the coronavirus pandemic. The NCLAT would however continue to hear insolvency appeals.

Ahuja highlights the risk that “there is a potential that some of the cases like those related to M&A may go off site if the approval from the respective authority does not come up on time as timeliness is crucial in such business calls.”

With respect to non-IBC cases, a total of 8,911 appeals were pending before the NCLT as of September last year as opposed to 1,630 appeals in January 2018. Further, total pending cases at NCLT added up to 21,421 with 12,130 cases under the IBC as on January 31st, 2020.

A Competition Law Review Committee report submitted to the government in August last year recommended a dedicated NCLAT bench to deal with the Competition Act appeals. However, the recommendation had largely remained on the papers.

But with continuous amendments to the bankruptcy code, the government has regularly been trying to address non-adherence to timeliness which is still a major challenge before the four-year old insolvency regime. Reports suggest that the government is now considering setting up dedicated benches of NCLT to deal with insolvency matters in order to adhere with the stipulated timeline of 330 days.

In order to fast track M&A approvals which at present take a minimum of six-eight months, the MCA is also considering moving merger matters out of the purview of NCLTs which may likely be taken up by the regional directors completely in near future.

Last week, the government notified the formation of a new NCLAT bench in Chennai.

A PIL filed two years back by a Chennai-based chartered accountant, V Venkata Siva Kumar, in the Madras High Court, had argued that since there is only one NCLAT, that too in Delhi, speedy disposal of cases by the tribunal seldom occurs.

“This is due to the inability of the parties from the southern states to regularly appear before the tribunal. This would further lead to stagnation of cases in the appellate tribunal resulting in inordinate delay till the appeal is finally disposed of by the NCLAT, which may go on for many hearings,” the PIL seeking a new NCLAT bench in Chennai added.

The bottom line
In a landmark judgement, in the Swiss Ribbons case in January 2019, the bench of Justice Rohinton Nariman had directed the centre to set up a circuit bench in Chennai.

After several follow-ups through RTI and parliament questions, the union minister for state for finance and corporate affairs Anurag Thakur had informed the parliament in December that the bench was being set up.

The new bench would hear the appeals against the orders of the benches of NCLT having jurisdiction of Karnataka, Tamil Nadu, Kerala, Andhra Pradesh, Telangana, Lakshadweep and Puducherry.

“This is a great blessing that has finally come to us,” Parasaran says.

But, the ‘blessing’ might still take a while. A recent circular on the NCLAT website mentions that due to the lack of human resources and required infrastructure, the newly constituted bench is expected to be fully functional only from June.

Meanwhile, “all filings in respect of Chennai Bench Jurisdiction shall be done at the Principal Bench at New Delhi even after 18th March, 2020 i.e. the date of constitution of the Chennai Bench, till the Bench at Chennai is expected to become functional in all probability in the month of June, 2020” the circular cites.

As the filing of cases for Chennai bench would also be done in Delhi for at least two months, Parasaran would probably make his silver-jubilee Delhi visit soon. But it may not quite be the silver bullet for the overburdened NCLAT.